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Census Report 2005: On a Steady Path
July 1, 2005 By: Esther Durkalski Hertzfeld Paperboard PackagingOn a Steady Path
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Two years ago, the vast majority of corrugated and folding carton converters described the industry as depressed. Last year things brightened and it looks like 2005 is providing a steady course to improvement.
 Methodology |
Paperboard Packaging's exclusive annual Census Report discloses that the improvements revealed during last year's Census Report are still in force this year. The corrugated industry is described as relatively flat compared to last year's results, but the folding carton industry is seeing some promising improvements.
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STATE OF THE INDUSTRY: CORRUGATED CONTAINER
One in three corrugated plants says it is operating in a healthy area, and only a handful describe the industry as thriving. Half of the respondents say business is stagnant, and 19 percent still say it is depressed. How would you describe the economic state of the corrugated container industry? |
This year's steady path is especially hopeful when compared to 2003's results where 90 percent described the industry as stagnant or depressed. In 2004, 32 percent of converters described the industry as healthy or thriving, while 68 percent described it as stagnant or depressed — the same as this year's results.
 Areas of Concern |
Converters who described the industry as healthy say it is so because business is good, they have new customers, competition is healthy, orders are backlogged, and there are new opportunities.
 How concerned are you about: (based on a scale of 1 to 4 with 4 being extremely concerned) |
A stagnant or depressed area is described as having limited or zero growth, customers are disappearing, plants are slicing the same pie, and manufacturers are producing less. Also, 23 percent of converters who responded say manufacturers are moving offshore or out of state and plants are closing, which contributes to the decline.
One in four plants operates in an area where there is overcapacity, instability and consolidations. Twelve percent say they are feeling the pinch of price pressures resulting in poor margins.
CORRUGATED CONTAINER : CUSTOMER SERVICE
Looking back, 2004 was the year of big equipment spending for the corrugated industry. Nevertheless, the purse is still open for 2005. This year, 35 percent of plants will increase their equipment spending over 2004. Also, 44 percent will keep equipment spending at last year's level. Only 21 percent are cutting back, and most of those converters are cutting back only because they made the purchases they needed in 2004. Whats the importance of the following services? (based on a scale of 1 to 5 with 5 being extremely important) |
The chief motivation for buying new equipment comes from a desire to offer quality. Forty-nine percent of plants are spending more, say converters. Quality drivers include upgrading equipment and keeping up with technology.
 CORRUGATED CONTAINER: Equipment Spending |
Several converters report they are buying equipment to stay on top of the technology. "We are improving our throughput efficiencies and improving our uptime," says one converter.
 Whats your most recent purchase? |
Growth motivates 33 percent of plants to spend more on equipment as volume, sales and demand increase. Twenty-two percent buy equipment as part of their quest to find new markets, offer new products, capture new business, and open new plants. Thirteen percent spent money on equipment as a way to achieve efficiencies through labor and productivity savings.
Of the 21 percent cutting back on equipment spending, most (42 percent) were simply set with their 2004 purchases.
 CORRUGATED CONTAINER: NEW! Production Spending |
Other reasons for cutting back include decreased sales, the unstable economy, lack of capital, and higher energy/material prices.
Over the next few months, 58 percent of corrugated plants will purchase new equipment. Conveyors top the list of equipment followed by flexo folder-gluers and rotary diecutters.
 What strategies have you taken in this competitive business climate? |
Most plants, 57 percent, recently purchased additional equipment and 43 percent bought to replace existing machinery. Three of four purchases were for brand new machines and 33 percent bought used. A few bought both new and used.
Four of five corrugated plants bought equipment for an existing market and 21 percent plan to enter a new market — some were looking to cover business in existing and new markets. Markets include new packaging products — an opportunity 40 percent mentioned. New products include P-O-P/displays, brown box, large box, sheets, small boxes, folding cartons, and moving boxes.
Thirty-five percent bought new machines as a way of boosting their added-value prospects, which include graphics, diecuts, and short-runs.
Converters listed the food and beverage industry as the most attractive new market to enter.
Just as with equipment spending, most board converters, 54 percent, will hold their production budget at last year's level. Overall, 29 percent will be spending more on production while only 17 percent will be cutting back.
Of those converters in the spending mode, 29 percent said they will invest in labor — specifically in new hires, training and benefits. Also, 21 percent will spend on improving their production process — investing in maintenance, lean initiatives, productivity, and speed. Other monies will flow to materials and supplies, including energy costs, freight, fulfillment, and graphics.
Of those converters who will be cutting back, most will cut labor, maintenance, material handling, inventory, raw materials, and warehousing.
CORRUGATED CONTAINER: BUSINESS MANAGEMENT
Corrugated container plants implemented several business strategies to combat the competitive business climate they are operating in. Three of four respondents are focused on efficiencies such as lean manufacturing, cost cutting, reducing labor, reducing waste, improving productivity, conserving energy, and reducing overhead. Unique Offerings |
Approximately 28 percent of converters are implementing marketing and sales approaches to compete in the industry. Those include looking for new markets. Twenty-two percent of corrugated converters made investments such as purchasing new equipment, increasing automation, offering higher-end products, increasing capacity, being innovative, setting up supply chain management, and training employees.
Corrugated converters say inventory control and supply chain management are very important services for corrugated plants to provide to their customers.
STATE OF THE INDUSTRY: FOLDING CARTON
Folding carton converters are faring much better than their corrugated counterparts. Forty-eight percent describe the folding carton industry as healthy and thriving while 52 percent described it as stagnant or depressed. How would you describe the economic state of the folding carton industry? |
That's a huge improvement compared to 2004 results, in which only 33 percent described the industry as thriving and healthy. Only 20 percent described the industry as healthy and thriving in 2003.
 How concerned are you about: (based on a scale of 1 to 4 with 4 being extremely concerned) |
Most say the industry is picking up with increased orders. Most are offering additional services that customers are taking advantage of.
 FOLDING CARTON: Customer Service |
"Business conditions demand new technology and volume is up for the first time in three years," says one Midwest folding carton converter.
The biggest concern for folding carton converters is the increasing raw materials prices, followed by the board price increase. Customers moving their business overseas, supplemented by overseas competition, are making things difficult for converters. The cost pressures their customers are putting on them also are negatively affecting converters.
FOLDING CARTON: EQUIPMENT SPENDING
This year, 41 percent of folding carton plants plan to increase spending on equipment and 41 percent plan to hold to last year's budget. Eighteen percent say they are planning to cut back spending. However, three out of four that are planning cut backs say they purchased sufficient equipment in 2004. Other reasons converters are decreasing spending include low profits/margins, slower sale and lack of growth. Comparing 2005 with 2004, do you anticipate increased spending, cut backs or no change in spending for equipment? |
The reasons for increasing equipment spending reflect growth in the industry. Fifty-seven percent of converters report increased capacity/volume,
 Why are you increasing equipment spending this year? |
increased demand and sales, company/plant expansions, and other growth. In addition, 38 percent are buying more machinery to make quality improvements, which include upgrades and improved quality.
Nineteen percent are buying as a way to tap into new markets and products. Fifteen percent see the new machinery as a way to encourage efficiencies through labor savings, process improvement and productivity gains.
Several folding carton converters that are purchasing machinery are looking to upgrade or modernize their equipment. "We're looking to keep up with technological advances in the industry and to provide better services," says one converter.
"We need to improve technology in order to produce more volume with less people," says another.
Several say they are looking to increase their capacity while reducing their cycle times.
"Our order pipeline is overburdened and we will need upgrades and replacements to match demand," says one East Coast rigid box maker.
Most folding carton converters are spending more money on equipment, approximately 44 percent. Twenty-two percent are spending more on labor and employee training while another 22 percent are spending on process improvements, such as lean initiatives and upgrades.
In 2005, 61 percent of folding carton converters will purchase new equipment while 39 percent say they will not be buying anything. Overall, 43 percent of plants will purchase printing-related items, with 30 percent of respondents saying they will purchase a new printing press. Thirteen percent will buy a new sheet feeder, while another 13 percent will buy gluers.
Many plants (41 percent) made their most recent equipment purchase in 2004. Thirty-eight percent made their purchase in 2005 while 10.5 percent made their most recent purchase in 2003. The most recent equipment purchase was usually a printing press at 32 percent.
The majority of folding carton plants making purchases will acquire new equipment (72 percent), while the other 28 percent purchase used.
The bulk of converters purchased the machinery for an existing market (80 percent) while 20 percent bought the machinery as a means to open a new market. The top markets folding carton converters are going after include food and beverage, pharmaceutical/medical, cosmetics, and retail.
FOLDING CARTON: PRODUCTION SPENDING
When it comes to production spending, folding carton plants are generally in a holding pattern. For 2005, 32 percent will be spending more and 62 percent will keep spending at last year's level. Six percent plan to cut back. Most plan to invest in new hires and training. Process improvements also rank high at 22 percent, including lean initiatives and upgrades. Sixteen percent will be increasing capacity and offering value-added products. Comparing 2005 with 2004, do you anticipate increased spending, cut backs or no change in spending for production? |
FOLDING CARTON: BUSINESS MANAGEMENT
Three out of four folding carton plants implemented business strategies that focus on efficiencies, such as lean manufacturing, cost cutting, improving productivity, conserving energy, reducing overhead, reducing plant shifts, and negotiating with suppliers for discounts and assistance. What strategies have you taken in this competitive business climate? |
Forty-three percent of respondents looked for new markets, entered non-traditional markets, increased market share, and diversified. Only one percent was able to charge a higher price for products.
 Unique Offerings |
Converters looked to investments to help combat the business climate — 35 percent purchased new equipment, increased automation, offered higher-end products, became more innovative, entered joint ventures, increased capacity, and trained employees. Ten percent looked to customer service improvements to help business.
STATE OF THE INDUSTRY: EQUIPMENT SUPPLIER
For the first time this year, Paperboard Packaging supplemented its exclusive Census research with a survey of the paperboard packaging industry suppliers. Of the suppliers surveyed, 76 percent have their corporate headquarters based in the United States while 24 percent are based in Europe. How would you describe the economic state of the corrugated container industry in your area. |
Almost all the suppliers have a business presence in the United States, while 71 percent have a presence in Europe and another 71 percent in Canada. Overall, 62 percent have a presence in South America and 59 in Asia. Only one in three has a presence in Africa.
 How would you describe the economic state of the folding carton industry in your area. |
State of the Industries
Suppliers describe the corrugated container industry exactly the same as the corrugated container plants describe their industry. Specifically, 68 percent of suppliers report the corrugated container industry as stagnant or depressed. Thirty-two percent say the industry is healthy. How concerned are you about: (based on a scale of 1 to 4 with 4 being extremely concerned) |
Suppliers that see the industry as healthy do so because of growth and new equipment orders. A stagnant or depressed area is one where corrugated plants have little or no growth, as noted by 41 percent of suppliers. Also, 36 percent blame the economy for the poor report card.
Regarding the folding carton industry, 53 percent of suppliers report it as stagnant or depressed and 47 report it as healthy or thriving. Suppliers see the industry as healthy when they see equipment purchasing and growth.
SUPPLIER SERVICES
Most corrugated converters report being pretty satisfied with their suppliers, especially in the area of technical support and parts availability. Satisfaction continues to be relatively high with maintenance support, ability to lease equipment, consulting services, and employee training. Compared to 2004, what will your R&D budget be for 2005? |
Converters are less satisfied with online system diagnostics, probably because not all suppliers offer this service.
Folding carton plants are fairly satisfied with their suppliers, especially in the area of technical support and parts availability. Satisfaction continues with maintenance support and leasing availability. Respondents were indifferent to employee training and consulting services, while online system diagnostics were rated low.
 Whats the customer-perceived importance of the following services: (based on a scale of 1 to 5 with 5 being the highest) |
How the suppliers rank their services is interesting when compared to converters' satisfaction levels. The data show that suppliers understand the importance of technical support, parts availability, training and maintenance to converters. However, suppliers need to improve converters' satisfaction with these services. Most converters say they are somewhat satisfied with these services.
 Other services : |
Suppliers rank consulting services and leasing equipment importance much lower than converters do.
In addition to these services, most suppliers say they offer additional services such as color management, design, scrap removal, development assistance, valuation, and the purchase of trade-ins.
According to the suppliers surveyed, 44 percent agree that leasing equipment has become a more popular alternative to purchasing equipment. Suppliers feel converters are most inclined to lease due to cash flow issues.
RESEARCH & DEVELOPMENT
One in three suppliers will be spending more on R&D in 2005 in an effort to maintain innovation and maintain the flow of new products, while staying competitive, and ensuring continuous improvement.Most suppliers, 54 percent, will keep their R&D budget at last year's level while 9 percent will reduce the investment in response to higher costs for raw materials, lower profits, and no new designs.
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